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Published Date: 15 December 2019
Global equities closed higher amid a partial resolution of the US-China trade war and as some clarity emerged on Brexit following the victory of the Conservatives in the UK election. Further, some strength in oil prices and better than expected economic data helped cement the gains. The MSCI All Country index rallied +1.3] on the back of strength across key sub-indices. The MSCI G7 index, the MSCI EM index and the MSCI FM index added +1.0% 5d, +3.6% 5d and +1.0% 5d respectively.
The focus this week will be on key economic data from the US (GDP data) and various central banks setting monetary policy including the Bank of England, Bank of Japan and Bank Indonesia. It will be interesting to watch the tone of BoE following emergence of clarity on the Brexit front.
As we enter into the final weeks of 2019, we look at equity markets which have performed well this year. In terms of USD, Greek and Russia stocks have delivered outsized returns with the Athex Composite index and the RTS index rallying +41.0% ytd and +40.5% ytd respectively. Among other key indices in the top 10 primary equity indices are the S&P 500 index (+26.4% ytd) and S&P/NZX 50 index (+25.2% ytd).
Regional equities closed mixed in a week which was dominated by successful listing of Saudi Aramco IPO on the Tadawul. The after-effects of the same on other regional markets as well as implications of OPEC’s further output cuts also weighed on investor sentiment. The S&P Pan Arab Composite index dropped -0.6% 5d.
The Tadawul was a notable outperformer with gains of +1.3% 5d. Saudi Aramco rallied +15.0% in two days of trading last week. Further, various index compliers said that they are considering fast-tracking inclusion of the stocks in their broad emerging market indices. In fact, MSCI confirmed that the stock will be included using the closing price of 17 December 2019 while FTSE would do the same using closing prices of 19 December 2019. Both these inclusions are likely to trigger passive inflows, according to market estimates, of as much as USD 1.3bn into the stock. The success of Saudi Aramco IPO also buoyed investor interest in other Saudi stocks. National Commercial Bank and Samba gained +0.6 5d and +5.6% respectively.
Elsewhere, the KWSE PM index closed +0.9% 5d to take its year to date gains to +29.6%. The move appears to be in anticipation of the inclusion of Kuwaiti stocks in the MSCI EM index. The decision is expected to be announced later this week.
Developed market equities closed higher as all key events panned out as expected and turned into tailwinds for the market. The bigger than expected majority for the Conservatives in the UK elections and the Phase 1 trade agreement between the US and China were key catalysts for markets. Further, comments from the Fed Chairman Jerome Powell following the last Fed meeting of 2019 was also in line with investor expectations. He re-iterated the confidence in the strength of the US economy and indicated that the bar remains high for both cutting as well as hiking interest rates.
Overall, the S&P 500 index, the Euro Stoxx 600 index and the Nikkei index added +0.7% 5d, +1.2% 5d and +2.9% 5d respectively. The FTSE 100 index rallied +1.6%.
Emerging market equities outperformed broader indices following paring down of key trade risks. Further, central banks across emerging markets continued to ease monetary policy. The Turkish Central Bank cut interest rates by 200 bps to 12% while the Bank of Russia lowered rates by 25 bps to 6.25%. Elsewhere, S&P Global Ratings revised Brazil’s outlook to positive from stable. All this put together helped investors’ to shrug off weak economic data from China and stocks to gain ground.
The MSCI EM index gained +3.6% 5d relative to +1.0% 5d move in the MSCI World index. It is also worth highlighting that as we wind down 2019, emerging markets assets have actually underperformed global assets by a wide margin despite outsized rally in some key emerging markets. The ratio between the MSCI EM index and the MSCI World index is currently at multi-year lows of 0.5 and not very far from the lows of 2004.
GCC Equity Flow Monitor - May 2020